Roaring comeback
Hertz drove off with a spectacular comeback in the securitisation market in 2021, emerging from its coronavirus pandemic-induced bankruptcy to raise US$4bn from the largest ABS issue since the 2008 financial crisis.
The deal was critical for Hertz because it helped repay all the company's outstanding ABS and raised US$2.2bn in liquidity.
It was a dramatic turnaround for the car rental company which filed for bankruptcy in May 2020. In only 13 months, it went from struggling to pay its creditors to investors clamouring for its debt in June 2021.
Hertz and the rest of the car rental industry were hammered in the early days of the Covid-19 crisis when auto demand plunged in line with travel due to social distancing restrictions.
“This was a very significant post-bankruptcy funding for Hertz. It went staggeringly well,” said Jay Steiner, co-head of global asset-backed securities at Deutsche Bank, which structured the offering and was a joint active bookrunner with Barclays, BNP Paribas and RBC.
The Estero, Florida-based company received court approval on June 10 for a reorganisation plan fronted by investment firms Knighthead Capital Management, Certares Opportunities, and Apollo Capital Management. The restructured company relisted on the Nasdaq and returned to the junk bond market in November 2021.
In its ABS return, Hertz adjusted how its rental cars are valued and put all the vehicles under a single master lease.
During the bookbuilding process for its first securitisation since 2019, more than US$20bn of orders came from 80 accounts, allowing Hertz to upsize its deal to nearly double the initial size of US$2.2bn.
The banks reached out to more than 140 buyside accounts to market Hertz Vehicle Financing III LLC Series 2021-1 and 2021-2. The US$2bn 2021-1 notes carried weighted-average lives of 3.28 years, while the US$2bn Hertz 2021-2 debt carried WAL of 5.28 years.
The sizzling demand resulted in spreads tightening 10bp–25bp from their guidance across all classes. The three-year notes clinched a weighted-average coupon of 1.66%, while the five-year paper cleared with a weighted-average coupon of 2.12%.
The pricing of the new Hertz ABS was a far cry from the discounted levels seen in the secondary market during its bankruptcy.
An important factor that bolstered the appeal of the deal and other auto securitisations in 2021 was a surge in car demand and record used vehicle prices. Car sales have rebounded due to lingering reluctance among some consumers to travel on public transportation. Reduced auto production stemming from a computer chip shortage also added to values of second-hand cars and trucks.
The widely followed Manheim used vehicle price index hit an all-time high of 239.8 in the first half of December 2021, up 49% from December 2020.
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